Market Overview

Power Integrations Reports Second-Quarter Financial Results

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Revenues were $109.5 million; GAAP earnings were $0.51 per diluted
share; non-GAAP earnings were $0.74 per diluted share

Power Integrations (Nasdaq: POWI)
today announced financial results for the quarter ended June 30, 2018.
Net revenues for the second quarter were $109.5 million, an increase of
six percent from the prior quarter and an increase of two percent from
the second quarter of 2017. Net income for the quarter was $15.4 million
or $0.51 per diluted share, compared to net income of $0.46 per diluted
share in the prior quarter and $0.46 per diluted share in the second
quarter of 2017. Cash flow from operations was $26.7 million for the
quarter.

In addition to its GAAP results, the company provided certain non-GAAP
financial measures that exclude stock-based compensation expenses,
amortization of acquisition-related intangible assets and the tax
effects of these items. Non-GAAP net income for the second quarter of
2018 was $22.2 million or $0.74 per diluted share, compared with $0.67
per diluted share in the prior quarter and $0.69 per diluted share in
the second quarter of 2017.

Commented Balu Balakrishnan, president and CEO of Power Integrations:
"Revenues and earnings increased significantly compared to the prior
quarter, and we generated strong cash flow while returning nearly $35
million to stockholders. While some customers have begun to express
caution in light of global trade issues, we expect third-quarter
sequential revenue growth consistent with recent seasonality. Meanwhile,
InnoSwitch™-3 products are winning designs across a broad range of
applications, and the next phase of growth in rapid-charging
applications is taking shape as USB PD technology approaches mass
adoption.

"We also achieved an important operational milestone in the second
quarter with the announcement of AEC-Q100 automotive certification for
our SCALE-iDriver® gate-driver products. Electric-vehicle
makers want safe, reliable power-conversion products for drivetrain,
charging and other high-voltage applications in the car, and we are
encouraged by the response of automotive customers."

Additional Highlights

  • Power Integrations repurchased approximately 434,000 shares of its
    common stock during the second quarter, utilizing $30.1 million. The
    company had $11.0 million remaining on its repurchase authorization at
    quarter-end.
  • The company paid a dividend of $0.16 per share on June 29, 2018. A
    dividend of $0.16 per share is scheduled to be paid on September 28,
    2018, to stockholders of record as of August 31, 2018.
  • Power Integrations was issued nine U.S. patents during the second
    quarter of 2018.

Financial Outlook

The company issued the following forecast for the third quarter of 2018:

  • Revenues are expected to be $114 million plus or minus $3 million.
  • Gross margins are expected to be similar to second-quarter levels.
  • GAAP operating expenses are expected to be between $41.5 million and
    $42.5 million; non-GAAP operating expenses are expected to be between
    $35 million and $36 million. (Non-GAAP expenses are expected to
    exclude approximately $6 million of stock-based compensation and $0.5
    million of amortization of acquisition-related intangible assets.)

Conference Call Today at 1:30 p.m. Pacific Time

Power Integrations management will hold a conference call today at 1:30
p.m. Pacific time. Members of the investment community can join the call
by dialing 1-647-689-4187. The call will also be available on the
investor section of the company's website, http://investors.power.com.

About Power Integrations

Power
Integrations, Inc.
is a leading innovator in semiconductor
technologies for high-voltage power conversion. The company's products
are key building blocks in the clean-power ecosystem, enabling the
generation of renewable energy as well as the efficient transmission and
consumption of power in applications ranging from milliwatts to
megawatts. For more information please visit www.power.com.

Note Regarding Use of Non-GAAP Financial Measures

In addition to the company's consolidated financial statements, which
are presented according to GAAP, the company provides certain non-GAAP
financial information that excludes stock-based compensation expenses
recorded under ASC 718-10, amortization of acquisition-related
intangible assets (including in-place lease intangible assets) and the
tax effects of these items. The company uses these measures in its
financial and operational decision-making and, with respect to one
measure, in setting performance targets for compensation purposes. The
company believes that these non-GAAP measures offer important analytical
tools to help investors understand its operating results, and to
facilitate comparability with the results of companies that provide
similar measures. These non-GAAP measures have limitations as analytical
tools and are not meant to be considered in isolation or as a substitute
for GAAP financial information. For example, stock-based compensation is
an important component of the company's compensation mix, and will
continue to result in significant expenses in the company's GAAP results
for the foreseeable future, but is not reflected in the non-GAAP
measures. Also, other companies, including companies in Power
Integrations' industry, may calculate non-GAAP measures differently,
limiting their usefulness as comparative measures. Reconciliations of
non-GAAP measures to GAAP measures are attached to this press release.

Note Regarding Forward-Looking Statements

The statements in this press release regarding the company's forecast
for its third-quarter financial performance are forward-looking
statements reflecting management's current expectations and beliefs.
These forward-looking statements are based on current information that
is, by its nature, subject to rapid and even abrupt change. Due to risks
and uncertainties associated with the company's business, actual results
could differ materially from those projected or implied by these
statements. These risks and uncertainties include, but are not limited
to: changes in global macroeconomic conditions, which may impact the
level of demand for the company's products; potential changes and shifts
in customer demand away from end products that utilize the company's
integrated circuits to end products that do not incorporate the
company's products; the effects of competition, which may cause the
company's revenues to decrease or cause the company to decrease its
selling prices for its products; the outcome and cost of patent
litigation, which may affect sales of the company's products or could
result in higher expenses and charges than currently expected;
unforeseen costs and expenses; and unfavorable fluctuations in component
costs or operating expenses resulting from changes in commodity prices
and/or exchange rates. In addition, new product introductions and design
wins are subject to the risks and uncertainties that typically accompany
development and delivery of complex technologies to the marketplace,
including product development delays and defects and market acceptance
of the new products. These and other risk factors that may cause actual
results to differ are more fully explained under the caption "Risk
Factors" in the company's most recent Annual Report on Form 10-K, filed
with the Securities and Exchange Commission (SEC) on February 14, 2018.
The company is under no obligation (and expressly disclaims any
obligation) to update or alter its forward-looking statements, whether
as a result of new information, future events or otherwise, except as
otherwise required by the rules and regulations of the SEC.

Power Integrations and the Power Integrations logo are trademarks or
registered trademarks of Power Integrations, Inc.

 

POWER INTEGRATIONS, INC.
CONSOLIDATED STATEMENTS OF
INCOME

(in thousands, except per-share amounts)

             
 
Three Months Ended Six Months Ended
June 30, 2018 March 31, 2018 June 30, 2017 June 30, 2018 June 30, 2017
NET REVENUES $ 109,482 $ 103,081 $ 107,563 $ 212,563 $ 212,251
 
COST OF REVENUES   53,248     49,537     54,116     102,785     108,328  
 
GROSS PROFIT   56,234     53,544     53,447     109,778     103,923  
 
OPERATING EXPENSES:
Research and development 17,898 17,481 17,341 35,379 33,981
Sales and marketing 13,022 12,574 12,607 25,596 24,240
General and administrative 9,220 9,014 8,765 18,234 17,469
Amortization of acquisition-related intangible assets   475     514     537     989     1,120  
Total operating expenses   40,615     39,583     39,250     80,198     76,810  
 
INCOME FROM OPERATIONS 15,619 13,961 14,197 29,580 27,113
 
Other income, net   885     836     465     1,721     971  
 
INCOME BEFORE INCOME TAXES 16,504 14,797 14,662 31,301 28,084
 
PROVISION FOR INCOME TAXES   1,123     597     760     1,720     83  
 
NET INCOME $ 15,381   $ 14,200   $ 13,902   $ 29,581   $ 28,001  
 
EARNINGS PER SHARE:
Basic $ 0.52   $ 0.48   $ 0.47   $ 1.00   $ 0.95  
Diluted $ 0.51   $ 0.46   $ 0.46   $ 0.97   $ 0.92  
 
SHARES USED IN PER-SHARE CALCULATION:
Basic 29,505 29,799 29,720 29,651 29,589
Diluted 30,183 30,552 30,454 30,387 30,370
 
 
SUPPLEMENTAL INFORMATION:
 
Stock-based compensation expenses included in:
Cost of revenues $ 292 $ 249 $ 351 $ 541 $ 494
Research and development 2,271 1,839 2,351 4,110 3,985
Sales and marketing 1,126 1,276 1,189 2,402 2,286
General and administrative   2,426     2,261     2,436     4,687     4,531  
Total stock-based compensation expense $ 6,115   $ 5,625   $ 6,327   $ 11,740   $ 11,296  
 
Cost of revenues includes:
Amortization of acquisition-related intangible assets $ 813   $ 813   $ 939   $ 1,626   $ 1,878  
 
General & administrative expenses include:
Patent-litigation expenses $ 2,019   $ 1,897   $ 1,779   $ 3,916   $ 3,623  
 
Other income, net includes:
Amortization of in-place lease intangible assets $ -   $ -   $ 90   $ -   $ 180  
 
 
REVENUE MIX BY END MARKET
Communications 20 % 19 % 22 % 20 % 25 %
Computer 5 % 5 % 4 % 5 % 4 %
Consumer 40 % 40 % 41 % 40 % 39 %
Industrial 35 % 36 % 33 % 35 % 32 %
 

 
POWER INTEGRATIONS, INC.
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES TO GAAP RESULTS
(in thousands, except per-share amounts)
             
Three Months Ended Six Months Ended
June 30, 2018 March 31, 2018 June 30, 2017 June 30, 2018 June 30, 2017
RECONCILIATION OF GROSS PROFIT
GAAP gross profit $ 56,234 $ 53,544 $ 53,447 $ 109,778 $ 103,923
GAAP gross margin 51.4 % 51.9 % 49.7 % 51.6 % 49.0 %
 
Stock-based compensation included in cost of revenues 292 249 351 541 494
Amortization of acquisition-related intangible assets   813     813     939     1,626     1,878  
 
Non-GAAP gross profit $ 57,339   $ 54,606   $ 54,737   $ 111,945   $ 106,295  
Non-GAAP gross margin 52.4 % 53.0 % 50.9 % 52.7 % 50.1 %
 
 
RECONCILIATION OF OPERATING EXPENSES
GAAP operating expenses $ 40,615 $ 39,583 $ 39,250 $ 80,198 $ 76,810
 
Less:Stock-based compensation expense included in operating expenses
Research and development 2,271 1,839 2,351 4,110 3,985
Sales and marketing 1,126 1,276 1,189 2,402 2,286
General and administrative   2,426     2,261     2,436     4,687     4,531  
Total   5,823     5,376     5,976     11,199     10,802  
 
Amortization of acquisition-related intangible assets   475     514     537     989     1,120  
 
Non-GAAP operating expenses $ 34,317   $ 33,693   $ 32,737   $ 68,010   $ 64,888  
 
 
RECONCILIATION OF INCOME FROM OPERATIONS
GAAP income from operations $ 15,619 $ 13,961 $ 14,197 $ 29,580 $ 27,113

GAAP operating margin

14.3 % 13.5 % 13.2 % 13.9 % 12.8 %
 

Add: Total stock-based compensation

6,115 5,625 6,327 11,740 11,296
Amortization of acquisition-related intangible assets   1,288     1,327     1,476     2,615     2,998  
 
Non-GAAP income from operations $ 23,022   $ 20,913   $ 22,000   $ 43,935   $ 41,407  
Non-GAAP operating margin 21.0 % 20.3 % 20.5 % 20.7 % 19.5 %
 
 
RECONCILIATION OF PROVISION (BENEFIT) FOR INCOME TAXES
GAAP provision for income taxes $ 1,123 $ 597 $ 760 $ 1,720 $ 83
GAAP effective tax rate 6.8 % 4.0 % 5.2 % 5.5 % 0.3 %
 
Tax effect of adjustments to GAAP results   (559 )   (789 )   (736 )   (1,348 )   (2,269 )
 
Non-GAAP provision for income taxes $ 1,682   $ 1,386   $ 1,496   $ 3,068   $ 2,352  
Non-GAAP effective tax rate 7.0 % 6.4 % 6.6 % 6.7 % 5.5 %
 
 
RECONCILIATION OF NET INCOME (LOSS) PER SHARE (DILUTED)
GAAP net income $ 15,381 $ 14,200 $ 13,902 $ 29,581 $ 28,001
 
Adjustments to GAAP net income
Stock-based compensation 6,115 5,625 6,327 11,740 11,296
Amortization of acquisition-related intangible assets 1,288 1,327 1,476 2,615 2,998
Amortization of in-place lease intangible assets - - 90 - 180
Tax effect of items excluded from non-GAAP results   (559 )   (789 )   (736 )   (1,348 )   (2,269 )
 
Non-GAAP net income $ 22,225   $ 20,363   $ 21,059   $ 42,588   $ 40,206  
 

Average shares outstanding for calculation of non-GAAP income per
share (diluted)

  30,183     30,552     30,454     30,387     30,370  
 
Non-GAAP net income per share (diluted) $ 0.74   $ 0.67   $ 0.69   $ 1.40   $ 1.32  
 
GAAP income per share $ 0.51   $ 0.46   $ 0.46   $ 0.97   $ 0.92  
 

 

POWER INTEGRATIONS, INC.
CONSOLIDATED BALANCE SHEETS
(in
thousands)

       
 
June 30, 2018 March 31, 2018 December 31, 2017
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 148,187 $ 121,327 $ 93,655
Short-term marketable securities 98,494 136,370 189,236
Accounts receivable, net 6,843 17,727 16,798
Inventories 68,824 63,208 57,087
Prepaid expenses and other current assets   10,619     11,003     7,758  
Total current assets   332,967     349,635     364,534  
 
PROPERTY AND EQUIPMENT, net 111,063 109,871 111,705
INTANGIBLE ASSETS, net 23,751 25,071 25,419
GOODWILL 91,849 91,849 91,849
DEFERRED TAX ASSETS 3,181 2,506 2,364
OTHER ASSETS   25,216     25,502     25,203  
Total assets $ 588,027   $ 604,434   $ 621,074  
 
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 26,518 $ 30,991 $ 33,211
Accrued payroll and related expenses 12,053 10,564 12,064
Taxes payable 1,254 2,183 1,767
Other accrued liabilities   4,588     4,427     4,009  
Total current liabilities   44,413     48,165     51,051  
 
LONG-TERM LIABILITIES:
Income taxes payable 17,635 18,138 18,259
Deferred tax liabilities 55 140 138
Other liabilities   4,095     4,159     3,944  
Total liabilities   66,198     70,602     73,392  
 
STOCKHOLDERS' EQUITY:
Common stock 28 29 29
Additional paid-in capital 152,380 175,352 198,384
Accumulated other comprehensive loss (2,088 ) (2,382 ) (2,139 )
Retained earnings   371,509     360,833     351,408  
Total stockholders' equity   521,829     533,832     547,682  
Total liabilities and stockholders' equity $ 588,027   $ 604,434   $ 621,074  
 

 
POWER INTEGRATIONS, INC.
CONSOLIDATED STATEMENTS OF
CASH FLOWS

(in thousands)
             
Three Months Ended Six Months Ended
June 30, 2018 March 31, 2018 June 30, 2017 June 30, 2018 June 30, 2017
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 15,381 $ 14,200 $ 13,902 $ 29,581 $ 28,001
Adjustments to reconcile net income to cash provided by operating
activities
Depreciation 4,760 4,931 4,357 9,691 8,469
Amortization of intangible assets 1,320 1,348 1,566 2,668 3,178
Loss on disposal of property and equipment 22 38 - 60 38
Stock-based compensation expense 6,115 5,625 6,327 11,740 11,296
Amortization of premium on marketable securities 114 262 257 376 508
Deferred income taxes (760 ) (140 ) 457 (900 ) (648 )
Increase in accounts receivable allowances 12 5 80 17 80
Change in operating assets and liabilities:
Accounts receivable 10,872 (934 ) (3,731 ) 9,938 (12,249 )
Inventories (5,616 ) (6,121 ) (1,283 ) (11,737 ) 132
Prepaid expenses and other assets 1,753 (3,141 ) (115 ) (1,388 ) (8,349 )
Accounts payable (7,509 ) 233 (1,252 ) (7,276 ) (3,629 )
Taxes payable and other accrued liabilities   233     (577 )   3,523     (344 )   3,208  
Net cash provided by operating activities   26,697     15,729     24,088     42,426     30,035  
 
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (4,022 ) (6,491 ) (16,473 ) (10,513 ) (22,876 )
Acquisition of technology licenses - (500 ) - (500 ) -
Purchases of marketable securities - - (49,636 ) - (111,574 )
Proceeds from sales and maturities of marketable securities   37,987     52,366     31,800     90,353     78,140  
Net cash provided by (used in) investing activities   33,965     45,375     (34,309 )   79,340     (56,310 )
 
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds from issuance of common stock 978 4,657 697 5,635 5,089
Repurchase of common stock (30,075 ) (33,314 ) - (63,389 ) -
Payments of dividends to stockholders (4,705 ) (4,775 ) (4,162 ) (9,480 ) (8,299 )
Proceeds from draw on line of credit - 8,000 - 8,000 -
Payments on line of credit   -     (8,000 )   -     (8,000 )   -  
Net cash used in financing activities   (33,802 )   (33,432 )   (3,465 )   (67,234 )   (3,210 )
 
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 26,860 27,672 (13,686 ) 54,532 (29,485 )
 
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD   121,327     93,655     46,335     93,655     62,134  
 
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 148,187   $ 121,327   $ 32,649   $ 148,187   $ 32,649  
 

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